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It hasn’t been a great year for $CORN prices, they have been in a steady decline since August of last year. This weekend I noticed an uptick in the net position of Commercial Traders in the latest round of COT data. This is a group that normally isn’t net-long corn, but they are considered the ‘smart money’ for a reason and maybe they see something the rest of the market doesn’t.

This is the topic of my latest TraderPlanet article:

Commitment of Traders data is a great resource for getting a good idea of how various groups of traders are positions in various markets. Typically I like to see how the Commercial Traders (‘smart money’) is positioned, whether that’s net-long or net-short and to what degree. Zooming in on corn we normally see Commercial Traders hold some degree of a net-short position, which makes sense as they try to hedge out some of the risk associated with rising corn prices. Since 2009 there are just four instances where Commercial Traders went net-long – most notably in late 2010 when prices went from $3.40 to $8 and again last year before corn jumped higher.

Read the rest to see the my thoughts on the chart and the levels I’ll be watching.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

I looked at corn a few days ago, pulling up the chart of the Teucrium Corn ETF (CORN) as well as some interesting charts from the USDA. Two of the analysts at Ned Davis Research were recently quoted in a Barron’s article as they looked at previous 20%+ moves in the crop and the resulting price action.

From Barron’s:

“[C]orn traders are shifting their focus away from the severity of the drought, saying the corn crop is developed enough that it has already suffered most of the damage it will sustain from the hot and dry weather,” writes Dow Jones Newswires’ Owen Fletcher this morning. “Traders say some market participants may already be exiting bets on corn towait for the U.S. Department of Agriculture on Aug. 10 to issue its newest supply-and-demand report, which is expected to include a revised forecast forthe corn crop’s yield.”

About the “history” mentioned a few moments ago: This is according to Ned Davis Research’s Warren Pies and John LaForge, who looked at 20%-or-greater one-month increases in corn prices. A year out from price spikes, prices aren’t much different. They’re range-bound, and tend to fall a bit as the fifth or six month approaches, they find.

Commercial traders have gotten back to a net short position since June, Pies and LaForge also note. This should tell us a thing or two. “This, like most of the other evidence we point to, does not mean corn’s move is done, but it does indicate that the ‘easy money’ has already been made,” they write.

So Pies and LaForge feel the ‘easy money’ has already been made in corn, which probably isn’t a stretch considering the corn ETF is up approx. 40% in a little over 2 months. Traders will be watching that August 10th USDA crop report for further insight into the awful crop season we have had.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

Corn has been a touch subject for many traders. I see a lot of traders posting their attempts to trade corn on Twitter, some have been successful others…not so much. Most have a gut reaction to think it has come too high too fast and still have the visual of when silver got up to $43/oz. before crashing to $29/oz. in a matter of days last year.

The drought being experienced in the Midwest has been awful, and as an Indiana resident I can attest to the number of 100+ degree days we have been having in Indianapolis. Below are some charts I’ve pulled from the USDA to show just how bad this year’s corn crop is.

First up we need to determine where most of the corn has been harvested in the past so we can zoom in to those states. Below is a chart that shows the number of acres of harvested corn in 2011.

It appears Iowa and Illinois were the largest harvesters of corn last year. So next let’s take a look at the current crop. Below we can see the progress of corn in Iowa. The top panel shows the percentage of crop that is good to excellent condition compared to previous years, 2012 being the red line.

And we are seeing similar weakness in Illinois…

Although the corn crop this year appears to be the worst at least through 2008, the price seems to be showing signs of potential weakness.

First up when looking at the price action in corn, I’m noticing that momentum (as measured by the RSI indicator) has been practically stagnant, making slightly lower highs but finding support near the 67 level.

Second, we will look at the bottom panel, the money flow index, which takes into account both price and volume. The MFI indicator has been creating a negative divergence for a few weeks now, but just recently it has taken out its previous low which completes the bearish divergence, as per the criteria laid out by the indicator’s creators, Gene Quong and Avrum Soudack.

Third, volume has been trailing off, setting lower highs while the price of the corn ETF rose and then has initiated some sideways action. Also notice that today’s attempt to stay above $50 was done on anemic volume.

The reason I started this post with charts from the USDA which shows the dire condition the corn crop has been in, is to remind readers that when it comes to commodities there is more to performing due diligence than JUST looking at the chart. However, while conditions seem to be worsening (we had another 100 degree day today in Indy as a matter of fact) the chart of corn appears to be showing some signs of exhaustion. It all comes down to which will traders give more credence, the crop reports or the chart?

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.